Overview


If you have commenced a Retirement Phase Pension within the SMSF, the investment earnings and realised capital gains earned from the assets supporting the Retirement Phase Pension are tax exempt (subject to the Transfer Balance Cap).

The proportion of income associated with the Retirement Phase Accounts are claimed as Exempt Current Pension Income (ECPI) on the SMSF Tax Return and it reduces your SMSF’s Total Assessable Income.

There are different methods to calculate the ECPI depending on your SMSF’s circumstances and an Actuarial Certificate may need to be obtained.


 
 
Retirement Phase Accounts

You have a Retirement Phase Account in the SMSF when:

  • Your Super Benefit is transferred to the Retirement Phase Account by commencing a Simple Account Based Pension (SABP), including a Death Benefit Pension;
  • You have commenced a Transition to Retirement Income Stream previously and the TRIS has subsequently entered the Retirement Phase when you turned age 65 or have retired/permanent incapacity/terminal illness and notified the Trustees (R-TRIS).

Any earnings allocated to these Retirement Phase Accounts are tax free.

 
 
Non-Retirement Phase Accounts

You have a Non-Retirement Phase Account in the SMSF when:

  • You have a balance in the Accumulation Account, which occurs under the following situations:
    1. You have Super Benefits in the SMSF but have not commenced a Pension;
    2. You have made additional contributions or rollovers into the SMSF after commencing a Pension;
    3. You have rolled back your balance in the Retirement Phase Pension into the Accumulation Account.
  • You have commenced a Transition to Retirement Income Stream (TRIS) and you are still under age 65 and not retired. If you have retired from the workforce, please complete the “Retirement” Application here. For more information on the definition of retirement, please click here.

Any earnings allocated to these Non-Retirement Phase Accounts are taxable at a rate of up to 15%.

 
 
Allocating Balances between Retirement Phase & Non-Retirement Phase Accounts

The Retirement Phase and Non-Retirement Phase accounts are "Accounting Accounts" and not actual physical bank accounts. Accordingly, whilst your actual Super Benefit will be invested in a range of assets including cash and shares, ESUPERFUND will allocate your Super Benefit between your "Retirement Phase Account" and your "Non-Retirement Phase Account" in the accounting records of your SMSF.

 
 
Exempt Current Pension Income (ECPI) Calculation Methods

The proportion of income associated with the Retirement Phase Accounts are claimed as Exempt Current Pension Income (ECPI) on the SMSF Tax Return and it reduces your SMSF’s Total Assessable Income.

There are two methods for calculating the amount of ECPI:

  • Segregated Method
  • Proportionate Method

The differences between these two methods are summarised in the following table.

Segregated Method Proportionate Method
Impact on realised capital gains/losses for the applicable period Capital gains and losses are disregarded if a capital gains tax event occurs.

  • Realised capital gains are not included in the SMSF’s Total Assessable Income for the reporting Financial Year and therefore are not subject to tax.
  • Realised capital losses are disregarded and cannot be used to offset realised capital gains for the reporting Financial Year and cannot be carried forward to future Financial Years.
Capital gains and losses are not disregarded if a capital gains tax event occurs.

  • Net realised capital gains are treated in the same way as other types of income for the purpose of calculating the ECPI.
  • Realised capital losses are firstly used to offset realised capital gains for the reporting Financial Year and any unused capital losses are carried forward to future Financial Years.
Impact on income (e.g. interest, dividend, rental income etc.) other than capital gains/losses for the applicable period All income (other than net capital gains) is claimed as ECPI and therefore tax exempt. An average tax exempt percentage is calculated by an Actuary who provides an Actuarial Certificate.

The average tax exempt percentage is then applied to the SMSF’s Total Income (incl. net realised capital gains) for the applicable period to determine the amount that is ECPI.

 
 
What is an Actuarial Certificate?

An SMSF is required to obtain an Actuarial Certificate for each Financial Year they claim the ECPI if the Proportionate Method is used to determine the amount of ECPI for any periods of the Financial Year.

The Actuarial Certificate determines what percentage of the SMSF was in the Retirement Phase during a Financial Year (and hence tax free) and what percentage of the SMSF was in the Non-Retirement Phase during a Financial Year (and hence taxable).

An Actuarial Certificate must be prepared by a registered Actuary as it is not legally possible for ESUPERFUND to prepare this document for clients. The Actuarial Fee for ESUPERFUND clients is . The Actuarial Fee is payable annually only if required.

 
 
Which ECPI Calculation Method should the SMSF use?

The following tables summarise the correct method to calculate the ECPI depending on your SMSF’s circumstances and whether an Actuarial Certificate is required.

Between 1 July 2017 and 30 June 2021

Table 1: ECPI Calculation Method b/w 1 July 2017 - 30 June 2021

Does the SMSF have DSFA?(Click here for the details.) 100% in Retirement Phase at all times of the FY? (Click here for the details.) ECPI Calculation Method Actuarial Certificate
Yes No difference Proportionate Method for the entire Financial Year. Required.

The tax exempt percentage calculated by the Actuary is applied to the SMSF’s Total Income for the entire Financial Year.
No Yes Segregated Method for the entire Financial Year. Not required.

The SMSF’s Total Income for the entire Financial Year is 100% tax exempt.
No Depends on the SMSF’s circumstances. Please click here for the detailed information. Depends on the SMSF’s circumstances. Please click here for the detailed information.

 

After 1 July 2021

The rules are slightly different due to some regulation changes post 1 July 2021. Where the SMSF is not required by law to use a particular calculation method, the Trustees can decide which ECPI method is appropriate for the SMSF in some circumstances.

Table 2: ECPI Calculation Method after 1 July 2021

Does the SMSF have DSFA?(Click here for the details.) 100% in Retirement Phase at all times of the FY? (Click here for the details.) ECPI Calculation Method Actuarial Certificate
Yes Yes Segregated Method for the entire Financial Year (new rule effective from 1 July 2021). Not required.

The SMSF’s Total Income for the entire Financial Year is 100% tax exempt.
No Proportionate Method for the entire Financial Year (No change). Required.

The tax exempt percentage calculated by the Actuary is applied to the SMSF’s Total Income for the entire Financial Year.
No Yes Segregated Method for the entire Financial Year (No change). Not required.

The SMSF’s Total Income for the entire Financial Year is 100% tax exempt.
No Depends on the SMSF’s circumstances. From 1 July 2021, the Trustees can decide which ECPI method is appropriate for the SMSF in some circumstances. Please click here for the detailed information. Depends on the SMSF’s circumstances. Please click here for the detailed information.

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